Define money supply and explain its components.
Money supply refers to the total stock of money of all types ( currency as well as demand deposits) held by the people of a country at a given point of time.
Money supply is measured in several ways which includes M1, M2, M3 and M4 measurement of money supply. Every measurement has it own definition with different components varying from most liquid to most rigid form.
1. M1= C+ DD+
OD
where,
C: It refers to
currency held by public in terms of coins and paper notes.
DD: It refers demand deposits of the people with the
commercial bank.
OD: These
includes other deposits with public financial institution, foreign central
banks and international financial institution.
2. M2 = M1+ deposits with the post office saving bank account
3. M3 = M1 + net time deposits with the commercial banks
4. M4 = M3 + Total deposits with post offices other than in the form of national saving certificate
Money supply refers to the total stock of money of all types ( currency as well as demand deposits) held by the people of a country at a given point of time.
Money supply is measured in several ways which includes M1, M2, M3 and M4 measurement of money supply. Every measurement has it own definition with different components varying from most liquid to most rigid form.
1. M1= C+ DD+ OD
where,
C: It refers to currency held by public in terms of coins and paper notes.
DD: It refers demand deposits of the people with the commercial bank.
OD: These includes other deposits with public financial institution, foreign central banks and international financial institution.
2. M2 = M1+ deposits with the post office saving bank account
3. M3 = M1 + net time deposits with the commercial banks
4. M4 = M3 + Total deposits with post offices other than in the form of national saving certificate
